3 Retail Stocks Changing Direction Heading Into Earnings

by Alyssa Oursler | March 6, 2013 11:07 am

Fourth-quarter earnings season is just about over and several big names in the retail sector — including Gap (NYSE:GPS[1]), Walmart (NYSE:WMT[2]) and TJX Companies (NYSE:TJX[3]) — have topped analyst expectations.

Still, a few stragglers have yet to post quarterly and full-year results. And three in particular — Express (NYSE:EXPR[4]), Guess (NYSE:GES[5]) and Ann Inc. (NYSE:ANN[6]) — have been relatively big movers of late. Express and Gap have been climbing high so far in 2013, while Ann has been on a steady downward trend.

What all have in common, though, is that each’s recent movement is the a clear shift from the stock’s direction several months back.

Take a look:

Express

Express has gained 17% overall since being spun off by Limited Brands (NYSE:LTD[7]) back in 2010 — not a good thing considering EXPR shares had climbed as much as 60% by early 2012.

But Express hit a rough patch last year, reaching a peak around $25 per share in May before shedding more than half its value and sinking down to $10 just four months later. Since that fall — and heading into its March 13 fourth-quarter report — shares have been regaining some of that ground in large chunks.

Recent jumps have come via the earnings expectations game. When EXPR first turned around in November, it was thanks to an updated Q4 outlook. Despite the fact Express nodded to an expected decrease in the low-single digits for same-stores sales (compared to a gain of 5% a year ago), the company’s EPS range of 62 cents to 68 cents was better than the analyst consensus of 56 cents. The stock got a boost, and analysts then upped their Q4 expectations to 66 cents per share.

Express again switched things up in January, saying comparable-store sales would be between flat and up 1%, while earnings would come in between 72 cents and 74 cents per share. EXPR soared 20% in one day as a result.

That kind of jump seems a bit outsized considering the upper end of the range is still only an improvement of 6% year-over-year. Then again, the company might have just been oversold to start.

Still, even after its market-beating 23% year-to-date climb, EXPR is trading for only 10 times forward earnings and remains 30% off its 52-week high. If Express manages to beat its already-raised expectations, it could have more room to gain.

Guess

Guess stock has improved 13% so far in 2013, but still remains almost 25% off its highs from nearly a year ago.

Guess’ broader slide has come amid some pretty disappointing results. GES missed analyst expectations by reporting a 47% earnings drop on a 2% revenue slide in the third quarter, and before that, Q2 earnings declined 31% amid revenues that fell 7%. The Street is ready for continued weakness, too, as current-quarter estimates are set for EPS of 87 cents, which would be a decline of 17% amid modest revenue growth.

That paints an ugly full-year picture that should see earnings fall 31% to $2.07 per share and sales slip 2% to $2.63 billion.

Despite the numbers, though, a few analyst upgrades in February — including one from Zacks[8] that cited long-term prospects despite short-term weakness, and one from The Street[9] lauding an attractive valuation — have buoyed the stock, as has the broader bull market.

That momentum could carry the stock higher when Guess reports on March 13, as long as it breaks recent tradition and at least meets its already-lowered expectations.

That’s hardly a bullish sentiment, though.

Ann Inc.

Last but not least, we have Ann Inc., which has been the polar opposite of the previous two stocks. Year-to-date, ANN has shed 13% — part of a downward trend that started back in October. Still, that only served to level out a stellar climb through mid-2012 that led to spectacular full-year gains of 37%. Even factoring in the most recent dropoff, Ann’s 15% gains in the past 52 weeks still trump the broader market.

Ann’s slide can be blamed at least in part thanks to worse-than-expected revenue guidance for Q4. The company’s November sales estimate came in below analyst expectations, then Ann lowered it again last month.

The culprit? Hurricane Sandy and … bright shirts. Yes, you heard correctly. The company said that “LOFT’s fourth-quarter investment in bright colors did not resonate with our clients this holiday season,” and that forced the company to rely on half-off deals. As a result, Ann is only expected to make a penny per share — 90% lower than its year-ago earnings, and a far cry from the 24 cents and 25 cents analysts expected one month and three months ago, respectively. Also, ANN’s same-store sales are slated to fall 1%.

Sometimes, though, low expectations can be a blessing in disguise. Ann shares have taken a bath and the bar is nearly touching the ground; a clean hurdle could re-energize ANN in a hurry.

Keep an eye out — Ann is on deck this Friday.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.